Repayment plan: we know how to apply for it and other useful information

What is a payment plan?

A repayment plan is an agreement between the debtor and the creditor under which the debtor repays his or her debt gradually, in set instalments and on set dates. This instrument is mainly used by people in situations where the debtor is unable to pay the entire debt at once, but also wants to avoid legal consequences such as fines or foreclosure. For example, if a tenant incurs a large arrears for electricity or water and does not currently have enough money to pay it, he or she can agree with the landlord or energy provider (depending on who the electricity is written to) to pay the arrears in instalments.

However, it is important to remember that not everyone is legally entitled to a repayment plan, so it cannot be taken for granted and can be counted on in the event of inability to pay.

When can I apply for a repayment plan?

You can apply for a repayment plan in different situations. Both public and private entities can apply. The most common situations for which entities apply for a repayment plan include debts, taxes and foreclosures.

• Debt owed to financial institutions: If you are behind on your loan payments, you can request a repayment plan from your bank or other financial institution. Each request is considered separately and you must wait to see if the bank agrees to reschedule.
• Taxes and fees: In the case of tax arrears, you can ask the tax office to spread the payments. The tax office may grant you a repayment plan, but you must clearly demonstrate that a lump sum payment would be liquidating for you.
• Bailiff: If you are facing foreclosure, you can try to negotiate a payment plan with the bailiff. This can partially stop him from taking further action if you pay everything back as agreed.

How to apply for a payment plan?

Applying for a repayment plan is not a complicated process, but it does require some care if you want to be successful with your application and have it approved by the institution. If you have the slightest doubt about how to proceed, contact us for advice.

Here we outline just a few steps you should follow:

1. Contact the lender: Before you submit the actual written application, we always recommend that you contact the lender first to discuss the possibility of a repayment plan. This can be a phone call or an email communication where you briefly describe your situation and your interest in spreading the debt over installments. If the creditor rejects your idea immediately, you would be wasting your time in the first step by writing an application.

2. The request must be in writing and contain key information such as identification of the debtor, the amount of the debt, the proposed repayments and the reason for the request (e.g. temporary financial hardship). You may also include documentary evidence to support your inability to pay the debt in one lump sum (e.g. payslips, proof of income, etc.). In the application, please provide your details (name, address, contacts) and identify the creditor. Briefly describe why you are requesting a repayment plan. This may be due to a sudden reduction in income, loss of employment or emergency expenses. Specify the amounts you are able to repay and how often (monthly, quarterly, etc.). Be sure to be realistic so that you don’t unnecessarily specify a repayment that you won’t be able to afford again in the end.

3. Delivery of the application: once you have written the application, send it by registered mail to the lender’s address or use their preferred contact channels (email, online form). Always keep a copy of the application and the confirmation of sending it.

How is the repayment plan approved?

The approval of the application depends on several factors, including the type of debt, the amount of debt and the approach of the creditor. For larger debts or court debts, approval usually requires more time. The creditor may request additional information or documents such as bank statements, tax returns or other confirmations to prove your current financial situation. This process can take several weeks, again depending on the complexity of the case.

Once the repayment plan is approved, the document becomes legally binding. Both parties must abide by the agreed terms – the borrower must make timely repayments and the lender must not apply additional penalties if the borrower makes payments as agreed.

Can I make changes to the repayment plan?

The borrower’s financial situation may change again over time. If it happens that you are unable to repay according to the original schedule, you must inform the creditor as soon as possible. In some cases, the borrower may be able to agree new repayment terms with the lender – for example, extending the repayment period or reducing individual repayments. It is important that you communicate any necessary changes in good time and always submit a new repayment proposal to the creditor.

What if you do not comply with the terms of the repayment plan?

Failure to comply with a repayment plan can have serious consequences. If the debtor stops paying or if payments are not made on time, the creditor has the right to:

• Terminate the repayment plan and demand repayment of the entire debt in one lump sum.
• Impose penalties on the debtor, such as interest on late payments or contractual penalties.
• Take legal action to recover the debt, including execution.

You may subsequently lose all your assets due to foreclosure or face having your bank accounts blocked, further worsening your financial situation. Therefore, always try to keep all your repayments and inform the creditor immediately in case of problems.

Repayment schedule and foreclosure: Do they go together?

If a person is already in foreclosure, he or she can still take advantage of the option to arrange a payment plan. In this case, however, it is a specific type of instalment plan that the debtor concludes directly with the bailiff. The bailiff may limit certain steps in the execution (e.g. blocking of assets) on the basis of the instalment plan, provided that the debtor pays the agreed instalments regularly.

Frequently asked questions about the instalment plan

Is it possible to apply for a payment plan for taxes?

Yes, the tax office can approve a payment plan for tax arrears at the request of the debtor if the debtor demonstrates financial hardship.

How long does it take to get a repayment plan approved?

It depends on the creditor and the type of debt. It can take a few weeks, but sometimes longer if additional information is required.

What should I do if I can’t pay according to the repayment plan?

The most important thing is to communicate with the creditor and try to negotiate new repayment terms. If you ignore the situation, you risk legal action.

Which institutions are most often asked for a repayment plan?

The most common institutions to apply to for a repayment plan are the Czech Social Security Administration, health insurance companies, tax authorities, municipalities (they can provide repayment plans for local charges such as garbage fees), the Customs Administration or banks.

Summary

A payment plan is a great solution for those who are in financial difficulties but want to settle their debts. It allows you to spread your debt over smaller, regular instalments, which helps to manage financial distress and avoid potential legal consequences. The agreed schedule is binding and can only be changed by agreement with the creditor. Adherence to the agreed instalments is essential, as failure to meet them may result in penalties or execution. If you are not sure how to handle the situation, it is always advisable to consult a specialist.